Reignited Inflation Could Push Social Security COLA Past 3% Next Year

The war in Iran has reignited inflation and sent energy costs soaring for everyday Americans.

The Department of Labor said Friday that prices rose 3.3% for the year ending in March, buoyed by a 10.9% surge in energy prices. Compared to the month prior, prices rose 0.9% overall, representing the largest one-month increase since the peak of the pandemic-induced inflation crisis in 2022.

“I was expecting a jump but did not know how much,” says Mary Johnson, an independent Medicare and Social Security analyst. “This one is a shock to the system.”

Sudden inflation spikes are difficult to stomach for most Americans, but older and disabled folks tend to be particularly susceptible because they largely live on fixed incomes.

Johnson says the jolt in costs is “likely to reshape household budgets for the vast majority of older consumers and could put a dent in retirement savings.”

Each month, Johnson tracks how inflation could impact the annual cost-of-living adjustment for Social Security benefits, known as COLA. Based on Friday’s inflation report, she says the COLA for 2027 could reach 3.2%.

Separately, The Senior Citizens League (TSCL), a nonprofit advocacy group for older Americans, estimated the 2027 COLA to be 2.8% — the same COLA beneficiaries saw for 2026.

Why the 2027 COLA might not be enough

About 75 million Americans receive Social Security benefits each month. A majority of them are retirees; for many recipients, the monthly benefit payments are their only source of income.

According to the Pew Research Center, 27% of Social Security beneficiaries rely solely on their benefits. As of March, the average monthly benefit was $1,931.

With inflation rising, it’s likely that beneficiaries will see at least some increase to their monthly payments starting next year — but how much remains an open question.

While Johnson’s analysis shows COLA ticking up, it’s only a preliminary estimate. A lot could happen before the official COLA is announced in October. The final figure is based on inflation trends for the months of July, August and September, and the adjusted benefits don’t go out until January 2027 for most.

The problem is: Americans are dealing with rapidly increasing prices right now. And there is no guarantee that today’s fluctuating prices will directly impact the inflation rates between July and September.

“This is a clear example of a structural weakness in how COLA is calculated,” says Shannon Benton, executive director at TSCL. “Seniors experience price increases in real time, but COLA adjustments are both delayed and backward-looking.”

That means retirees must absorb rising costs for up to a year before seeing any benefit, she adds.

How gas prices may affect future inflation

Some analysts say the silver lining is that so-called “core inflation,” which strips out energy costs, is steady. That means the uptick in overall inflation could be relatively short-lived.

“While higher gas prices are pushing near‑term inflation expectations up, long‑term expectations remain stable, which is exactly what policymakers want to see,” Adam Schickling, an economist at Vanguard, said in emailed commentary.

Gas prices can be stubborn, though. They skyrocketed in just days following the U.S. attacks on Iran, but it may take weeks or even months after the war ends for them to come back down.

Even in the best-case scenario of the Iran war ending soon, experts told Money that drivers should expect to pay about $3.50 a gallon for the rest of the year.